Reply #60: Not a great idea. [View All]

Raising interests rates right now will put us into a depression. Lowering them at 0% is impossible. The Fed is going to find that things like QE2 cannot be done forever, but to not do them would hurt the economy.

The scenario is this:

Raise interest rates and hurt the economy.

Do much more quantitative easing, that will eventually trigger high inflation, and hurt the economy... possibly more.

Do nothing, and we will hurt the economy because suddenly all the problems we put off using option two would crash down on us.

When we artificially lower interest rates in order to boost economic growth, we soon find that the money pumped into the system is finite. Once it disappears and it is revealed that resources were not as plentiful as earlier thought we have a bubble burst.

This happened with the Housing bubble.

Of course this is theory (The Austrian Business Cycle... won a noble prize). Many of the people who think this, predicted the housing bubble as late as 2000, unlike other economists who predicted it as early as 2007-08. (was that sarcasm?)

However, I will admit. I am a bit lost when those same people talk about a Dollar bubble. But considering China's recent hints at stopping to buy out dollars... It certainly doesn't look like whatever will happen is going to be good.